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JKCPA, CPA

Category: Finance

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Experience: Bachelors degree and CPA with Accounting experience.

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2nd part, 2hr deadline. 11. Master Card and other credit

Resolved Question:

2nd part, 2hr deadline. 11. Master Card and other credit card issuers must by law print the Annual Percentage Rate (APR) on their monthly statements. If the APR is stated to be 23.50%, with interest paid monthly, what is the card's EFF%? 30.66% 26.20% 23.32% 22.80% 22.54%

-------------------------------------------------------------------------------- 12. Your girlfriend just won the Florida lottery. She has the choice of $14,600,000 today or a 20-year annuity of $1,050,000, with the first payment coming one year from today. What rate of return is built into the annuity? 3.74% 3.71% 4.53% 3.03% 3.44%

-------------------------------------------------------------------------------- 13. Chang Corp. has $375,000 of assets, and it uses only common equity capital (zero debt). Its sales for the last year were $520,000, and its net income was $25,000. Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15.0%. What profit margin would the firm need in order to achieve the 15% ROE, holding everything else constant? 10.71% 9.41% 10.82% 8.11% 12.66%

-------------------------------------------------------------------------------- 14. Han Corp's sales last year were $395,000, and its year-end receivables were $52,500. The firm sells on terms that call for customers to pay 30 days after the purchase, but some delay payment beyond Day 30. On average, how many days late do customers pay? Base your answer on this equation: DSO - Allowed credit period = Average days late, and use a 365-day year when calculating the DSO. 15.92 15.18 13.88 18.51 14.07

-------------------------------------------------------------------------------- 15. Your father's employer was just acquired, and he was given a severance payment of $397,500, which he invested at a 7.5% annual rate. He now plans to retire, and he wants to withdraw $35,000 at the end of each year, starting at the end of this year. How many years will it take to exhaust his funds, i.e., run the account down to zero? 27.19 24.55 26.13 21.38 26.40

-------------------------------------------------------------------------------- 16. Suppose you inherited $630,000 and invested it at 8.25% per year. How much could you withdraw at the end of each of the next 20 years? $49,023.94 $65,365.26 $81,052.92 $79,745.61 $81,706.57

-------------------------------------------------------------------------------- 17. Last year Ann Arbor Corp had $105,000 of assets, $305,000 of sales, $20,000 of net income, and a debt-to-total-assets ratio of 37.5%. The new CFO believes a new computer program will enable it to reduce costs and thus raise net income to $33,000. Assets, sales, and the debt ratio would not be affected. By how much would the cost reduction improve the ROE? 19.81% 20.21% 16.84% 22.58% 24.17%

-------------------------------------------------------------------------------- 18. What's the present value of a 4-year ordinary annuity of $2,250 per year plus an additional $2,950 at the end of Year 4 if the interest rate is 5%? $11,133.74 $8,740.50 $10,405.36 $8,532.40 $12,590.49

-------------------------------------------------------------------------------- 19. Suppose you just won the state lottery, and you have a choice between receiving $2,075,000 today or a 20-year annuity of $250,000, with the first payment coming one year from today. What rate of return is built into the annuity? Disregard taxes. 11.10% 10.38% 12.14% 9.44% 11.83%

-------------------------------------------------------------------------------- 20. You have a chance to buy an annuity that pays $28,000 at the beginning of each year for 5 years. You could earn 4.5% on your money in other investments with equal risk. What is the most you should pay for the annuity? $128,450.72 $118,174.66 $120,743.68 $129,735.23 $98,907.05